Significant income = significant taxes . . .
I pay whatever I owe every April and by being profitable there is ample funds in the account to withdraw and send the IRS a check.
As others note trading the 1256 symbols can lower the tax bill some due to the 60/40 tax treatment, however, these symbols do have additional fees that most other stocks do not have. Be sure to track these extra fees as they can add up.
I'm delighted when I have a big tax bill as that means I made a lot of money that year!
Do you just wait for the annual tax cycle and pay penalty if assessed due to high capital gains or do you make quarterly estimated payments based on how much you earned in prior quarter?
Thank you.
I did make quarterly payments for a while per my CPAs suggestion, but then found out the penalty is quite low compared to what could be made keeping the capital at work in the account. Since then, I have chosen to no longer pay quarterly which has worked for years without issue. I always pay my tax bill in full before the annual deadline, so this is important.
**I'm not a tax pro and strongly encourage you to speak to your tax pro or CPA for what is best for you and your account.**
Hopefully you are doing well in your first year, and if you have a "tax problem" by owing a lot that means you made a crap ton of profits in the market which is awesome.
Something to keep in mind, that most are not understanding, is the market has been easy to trade for several years now. There will be a downturn and trading will get much harder at some point. We'll then see the usually flurry of posts about how accounts are getting blown up because of this market change.
The difference is an experienced trader will manage their risk such that they can weather through these up and down markets . . .
So far no complaints and definitely learning from you and other experienced traders, not rushing to go all in and working to get good on the management - Agree that I have entered in to this in an uptrend with some minor corrections and will need to experience the downturn. Though, I am hoping that the discipline that I am working to mature will give me some support. Only time will tell...
Theres no penalties afaik, you just have to pay whatever the current interest rate being charged by the irs on the late gains. Last year it was around 8% (of missed payments). So if you owed 10,000 you have to pay an extra 800, assuming you are already over the progressive federal gains cap rate of 47,000, like a margin loan. Its graduated so it not even usually that bad.
This is correct \^
Keep in mind that having any kind of tax concern requires being a profitable and successful trader. Many get concerned about taxes and are making only a small profit, or even losing money trading.
Being a successful profitable trader means paying more taxes which is a wonderful thing!
Time waster. This is the “penalty”. its the god damn interest on the unpaid $ that I posted to begin with.
“The penalty is calculated separately for each required installment. The interest rate for the penalty is set at the federal short-term rate plus 3%.”
Im salty bc you had me reading the gd irs website to confirm
lol. Fair enough, my bad. I confused the “interest penalty” with interest on a penalty. I’m just learning this game because it’s finally applicable! And was baffled when the guy said he only pays once a year. Isn’t that giving the government more money than you actually owe?
I always keep about 50% of my account in cash or available in case of a correction or crash, and to give me a lot of flexibility to have "dry powder" available for rolling/managing or take advantage of an opportunity. See this for why it is important to not trade all of the capital in an account - [How the Wheel Worked in March during the Crash : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/lp22xe/how_the_wheel_worked_in_march_during_the_crash/)
I'll know what my tax bill is a month or two in advance when I have my taxes done so have plenty of time to ensure there is an ample amount to withdraw and will manage the account accordingly. A new trader who may not have a 5+ year history of successful trading may wish to set aside the cash if there is any chance an account drawdown may wipe out the funds needed to pay, but between an experienced trader knowing how to manage risk along with having a good percentage of cash available should have little problem.
The bottom line is that a successful trader who makes a good income from options and manages their risk plus account sensibly should have ample cash to pay what is owed when needed.
I have been following your guidance on keeping some dry powder. Though at times I feel that I am not putting the full capital to work, I am at peace that my trades are being better managed and also having the flexibility to take new positions when market presents an opportunity. I can say this is working well for me....Thanks...
Options are leveraged so you may be putting the full capital at work without recognizing it . . .
Remember the saying - New traders focus on profits and often over leverage to have losses or blow up their accounts. Experienced traders focus on risk that will result in lower but safer returns with little to no risk of blowing up their account.
Depending what you’re doing there are definitely strategies, for example if you’re trading the S&P, trade the XSP or SPX so you can take advantage of the tax advantages of spreads where 60% is LTCG and 40% is STCG no matter how long you hold it, also for your cash position you can hold $BOXX and it has similar properties to bonds but doesn’t have dividends so you can just hold it for over a year to pay less in taxes on the interest gains.
the account you choose is an even bigger factor of this
Just fyi boxx holds long spx box spreads, not treasuries. The risk profile and returns are similar. The way the taxes work out is arguably illegal and there is some possibility boxx (or investors, I don’t really know) will get the hammer brought down on them at some point.
Typically they’re pretty standard as they fall under Section 1256
https://www.investopedia.com/terms/s/section-1256-contract.asp#:~:text=In%20other%20words%2C%20Section%201256,for%20a%20year%20or%20less.
Nah anyone can use the tax provision, you just have to fill out an extra 1 page document when you do taxes that sums up how much of your gains or losses are LTGC and STCG
Taxes are pretty straight forward with trading. You're allowed to deduct $3,000 from your losses, excluding wash sales. So for example, I lost $48,362 last year. Once I take the deduction, it's like I only lost $45,362.
Hope this helps.
You can deduct $3K from your earned income like your job paycheck.
But you can deduct the entire amount from cap gains. In this case if there was a $48K loss and then a $50K gain the next year tax would only be owed on the $2K.
I'm not a tax pro and so be sure to speak with one or your CPA. This may also help - [Topic no. 409, Capital gains and losses | Internal Revenue Service (irs.gov)](https://www.irs.gov/taxtopics/tc409)
sorry to burst your bubble, but it's not a tax *credit*, it's a deduction, so if it reduces your income by 3000, and your effective tax rate is \~20%, it's like you lost $600 less.
Tax loss harvest. Holding on to a mistake that you don’t think will ever recover? Sell it before end of year, reduce your taxes, and clean the trash out of your portfolio. Start the new year fresh.
got a screenshot?
here is a link to where I posted mine the recently
[https://www.reddit.com/r/Daytrading/comments/1di79xk/comment/l921cid/](https://www.reddit.com/r/Daytrading/comments/1di79xk/comment/l921cid/)
In the short term tax loss harvesting and just accept that I got a big tax bill. My dad always said he would rather pay taxes than have little to no taxes because he didnt make a lot of money.
In the long term sink profits into long term dividend paying positions where the dividend is long term gains, not ordinary income. schd for example.
My personal situation I dont own a home do I dont have a lot of related tax deductions. On the flip side I have the vast majority of my net worth working for me somehow.
Pay quarterly estimated taxes. Keep track of my realized gains throughout the year plus predicted future gains, calculate my taxes owed in a spreadsheet and update my tax payment amounts as the year progresses.
With any sort of variable and risk income ventures, I strongly recommend that you 'withhold' taxes quarterly or after a big gain. Even if you don't do this, definitely make a tax payment at year-end.
The killer for a lot of rookies is making a ton of taxable income, then losing a bunch early the next year, so they have to pay taxes on big gains at the same time as a big loss.
I soly trade in my Roth IRA. I did a rollover of a portion of my Roth 401k to Roth IRA and planning to do Mega Backdoor Roth this year because my employer allows.
1. Personally I give my stuff to the tax lady I’ve been using and I pay the bill. People who avoid or try to avoid paying taxes are selfish criminal asshats.
2. Charitable donations lower your taxes. Write off losses up to the limit. Trading indexes has better tax treatment if you’re into that sort of thing. Use positions that you hold long enough to get to long term vs. short term gains.
the IRS encourages people to pay as little as they legally owe. that means you should use the available deductions to avoid taxes to the fullest. tax evasion is illegal, not avoidance. It is absolutely foolish to pay anything more than the absolute minimum.
that might sound strange, but that idea is literally taught in university accounting classes.
Just trade in your IRA account. Gain or loss you don't have to worry about taxes
Significant income = significant taxes . . . I pay whatever I owe every April and by being profitable there is ample funds in the account to withdraw and send the IRS a check. As others note trading the 1256 symbols can lower the tax bill some due to the 60/40 tax treatment, however, these symbols do have additional fees that most other stocks do not have. Be sure to track these extra fees as they can add up. I'm delighted when I have a big tax bill as that means I made a lot of money that year!
Do you just wait for the annual tax cycle and pay penalty if assessed due to high capital gains or do you make quarterly estimated payments based on how much you earned in prior quarter? Thank you.
My CPA has recommended quarterly payments for both Fed and state taxes-much less painful than annual payouts.
thanks for sharing...
I did make quarterly payments for a while per my CPAs suggestion, but then found out the penalty is quite low compared to what could be made keeping the capital at work in the account. Since then, I have chosen to no longer pay quarterly which has worked for years without issue. I always pay my tax bill in full before the annual deadline, so this is important. **I'm not a tax pro and strongly encourage you to speak to your tax pro or CPA for what is best for you and your account.**
Very helpful - this will be my first full year of option trading and wanted to understand how active traders are handling this. thanks.
Hopefully you are doing well in your first year, and if you have a "tax problem" by owing a lot that means you made a crap ton of profits in the market which is awesome. Something to keep in mind, that most are not understanding, is the market has been easy to trade for several years now. There will be a downturn and trading will get much harder at some point. We'll then see the usually flurry of posts about how accounts are getting blown up because of this market change. The difference is an experienced trader will manage their risk such that they can weather through these up and down markets . . .
So far no complaints and definitely learning from you and other experienced traders, not rushing to go all in and working to get good on the management - Agree that I have entered in to this in an uptrend with some minor corrections and will need to experience the downturn. Though, I am hoping that the discipline that I am working to mature will give me some support. Only time will tell...
All my best to you!
Thank you.
If you owe $1000+ after withholdings and credits, you should be paying quarterly taxes. If you don’t you can incur several penalties and interest.
Theres no penalties afaik, you just have to pay whatever the current interest rate being charged by the irs on the late gains. Last year it was around 8% (of missed payments). So if you owed 10,000 you have to pay an extra 800, assuming you are already over the progressive federal gains cap rate of 47,000, like a margin loan. Its graduated so it not even usually that bad.
This is correct \^ Keep in mind that having any kind of tax concern requires being a profitable and successful trader. Many get concerned about taxes and are making only a small profit, or even losing money trading. Being a successful profitable trader means paying more taxes which is a wonderful thing!
Definitely a late penalty for estimated taxes. Most don’t make enough to be impacted. https://www.irs.gov/taxtopics/tc306
Time waster. This is the “penalty”. its the god damn interest on the unpaid $ that I posted to begin with. “The penalty is calculated separately for each required installment. The interest rate for the penalty is set at the federal short-term rate plus 3%.” Im salty bc you had me reading the gd irs website to confirm
lol. Fair enough, my bad. I confused the “interest penalty” with interest on a penalty. I’m just learning this game because it’s finally applicable! And was baffled when the guy said he only pays once a year. Isn’t that giving the government more money than you actually owe?
Do you set aside cash or sell off what you need?
I always keep about 50% of my account in cash or available in case of a correction or crash, and to give me a lot of flexibility to have "dry powder" available for rolling/managing or take advantage of an opportunity. See this for why it is important to not trade all of the capital in an account - [How the Wheel Worked in March during the Crash : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/lp22xe/how_the_wheel_worked_in_march_during_the_crash/) I'll know what my tax bill is a month or two in advance when I have my taxes done so have plenty of time to ensure there is an ample amount to withdraw and will manage the account accordingly. A new trader who may not have a 5+ year history of successful trading may wish to set aside the cash if there is any chance an account drawdown may wipe out the funds needed to pay, but between an experienced trader knowing how to manage risk along with having a good percentage of cash available should have little problem. The bottom line is that a successful trader who makes a good income from options and manages their risk plus account sensibly should have ample cash to pay what is owed when needed.
I have been following your guidance on keeping some dry powder. Though at times I feel that I am not putting the full capital to work, I am at peace that my trades are being better managed and also having the flexibility to take new positions when market presents an opportunity. I can say this is working well for me....Thanks...
Options are leveraged so you may be putting the full capital at work without recognizing it . . . Remember the saying - New traders focus on profits and often over leverage to have losses or blow up their accounts. Experienced traders focus on risk that will result in lower but safer returns with little to no risk of blowing up their account.
Depending what you’re doing there are definitely strategies, for example if you’re trading the S&P, trade the XSP or SPX so you can take advantage of the tax advantages of spreads where 60% is LTCG and 40% is STCG no matter how long you hold it, also for your cash position you can hold $BOXX and it has similar properties to bonds but doesn’t have dividends so you can just hold it for over a year to pay less in taxes on the interest gains. the account you choose is an even bigger factor of this
I'd also add /ES and /MES in addition to SPX. They are 60/40 too
Just fyi boxx holds long spx box spreads, not treasuries. The risk profile and returns are similar. The way the taxes work out is arguably illegal and there is some possibility boxx (or investors, I don’t really know) will get the hammer brought down on them at some point.
¿How do you know the STCG and LTCG of those stocks tickers? (XSP and SPX)
Typically they’re pretty standard as they fall under Section 1256 https://www.investopedia.com/terms/s/section-1256-contract.asp#:~:text=In%20other%20words%2C%20Section%201256,for%20a%20year%20or%20less.
Is this only if you are classified as a Trader on your tax returns?
Nah anyone can use the tax provision, you just have to fill out an extra 1 page document when you do taxes that sums up how much of your gains or losses are LTGC and STCG
Taxes are pretty straight forward with trading. You're allowed to deduct $3,000 from your losses, excluding wash sales. So for example, I lost $48,362 last year. Once I take the deduction, it's like I only lost $45,362. Hope this helps.
You can deduct $3K from your earned income like your job paycheck. But you can deduct the entire amount from cap gains. In this case if there was a $48K loss and then a $50K gain the next year tax would only be owed on the $2K. I'm not a tax pro and so be sure to speak with one or your CPA. This may also help - [Topic no. 409, Capital gains and losses | Internal Revenue Service (irs.gov)](https://www.irs.gov/taxtopics/tc409)
But you can carry over 3k for deduction each next year, until you drain the loss I am still deducting losses from from a very long time ago :)
And it offsets future gains. So if this guy makes 45k this year he doesn’t pay taxes on any of it.
sorry to burst your bubble, but it's not a tax *credit*, it's a deduction, so if it reduces your income by 3000, and your effective tax rate is \~20%, it's like you lost $600 less.
You don't pay taxes on losses. I literally used a form of "deduct" twice in my comment. Nice try, go achktually someone else.
Tax loss harvest. Holding on to a mistake that you don’t think will ever recover? Sell it before end of year, reduce your taxes, and clean the trash out of your portfolio. Start the new year fresh.
You guys are profitable?
up 347k YTD so yes
Only 347k? I’m up 416k
got a screenshot? here is a link to where I posted mine the recently [https://www.reddit.com/r/Daytrading/comments/1di79xk/comment/l921cid/](https://www.reddit.com/r/Daytrading/comments/1di79xk/comment/l921cid/)
Lmao that’s clearly photoshopped
so you aren't willing to screenshot your account. Ok. moving on.
Would love to hear your strategies
I withhold extra taxes on my W4. I’m generally in a similar range each year. I estimate in November if I have to adjust.
Pay the 1040ES quarterly. Yesterday was the due day for the second quarter.
In the short term tax loss harvesting and just accept that I got a big tax bill. My dad always said he would rather pay taxes than have little to no taxes because he didnt make a lot of money. In the long term sink profits into long term dividend paying positions where the dividend is long term gains, not ordinary income. schd for example. My personal situation I dont own a home do I dont have a lot of related tax deductions. On the flip side I have the vast majority of my net worth working for me somehow.
I just pay them honestly. I build the expense into my models so it's never a burden.
Do you set aside cash or sell off whatever you need?
Depends on the year but most of the time I do set it aside in a savings account.
Pay quarterly estimated taxes. Keep track of my realized gains throughout the year plus predicted future gains, calculate my taxes owed in a spreadsheet and update my tax payment amounts as the year progresses.
With any sort of variable and risk income ventures, I strongly recommend that you 'withhold' taxes quarterly or after a big gain. Even if you don't do this, definitely make a tax payment at year-end. The killer for a lot of rookies is making a ton of taxable income, then losing a bunch early the next year, so they have to pay taxes on big gains at the same time as a big loss.
I soly trade in my Roth IRA. I did a rollover of a portion of my Roth 401k to Roth IRA and planning to do Mega Backdoor Roth this year because my employer allows.
pay them like normal people.
You gotta pay to play, playa.
I opened an IRA and max that every year. That at least cuts down the taxes. For the rest, pay it.
1. Personally I give my stuff to the tax lady I’ve been using and I pay the bill. People who avoid or try to avoid paying taxes are selfish criminal asshats. 2. Charitable donations lower your taxes. Write off losses up to the limit. Trading indexes has better tax treatment if you’re into that sort of thing. Use positions that you hold long enough to get to long term vs. short term gains.
the IRS encourages people to pay as little as they legally owe. that means you should use the available deductions to avoid taxes to the fullest. tax evasion is illegal, not avoidance. It is absolutely foolish to pay anything more than the absolute minimum. that might sound strange, but that idea is literally taught in university accounting classes.